I don’t see the sense in going back into the stock market now. See calculations below. I am in all cash right now. I would love your opinion on my logic.

Assumption #1:
After the next recession (whenever that is), I think it’s fair to say stocks will take some time to return to their current value (based on historical data). For the sake of argument, let’s assume this happens Y years from today, but the # years does not matter at all in this calculation. This is an important assumption to talk about later, but hear me out…

At the Y-year mark, let’s compare 2 strategies: getting back in now and waiting until the market drops to get back in. And compare the returns:

Side note:
I am 27 and have about $50k to invest (in my 401k) – it’s currently all cash (because I switched from employer fund options to brokeragelink in my fidelity 401k in 2014, which forced me to sell all my stocks).

Dividends:
My portfolio (index funds) would give an average 1.5% dividend yield
--> 1.015^x, where x is number of years, tells you the new value due to return from dividends

-----------STRATEGY B: WAIT FOR 15% DROP--------
Appreciation:
> Buy when market is 15% below its current price
> When the market returns to its current price I will have made a 15% return (Portfolio appreciates by a factor of 1.15)

Dividends:
I will ignore the dividend gains from this because I don’t know how long it will take to appreciate 15%.

It would only make sense to go back into the market now if it will took 9.5 years to drop 15%. For this to happen, the market would continue growing and peak in 8 or so years (according to historical data). We've already had 8 years...that would be a 8+8 = 16 year bull market -- possible but highly unlikely!)

Note that Strategy B is NOT emotional – it means putting in a limit order when the market is at 15% below its current value.

As I said earlier, I’m assuming the market returns to its current value someday (Assumption #1). This is definitely the weakest point of my logic. Let’s talk about that in the comments!

Nobody can time the market consistently for the long-term. Unless you're set on never again investing in the market, you might as well start investing now so that you have more time to ride out the ups and downs of the market before you hit retirement age. Even if you don't invest in the market, you still face risks, namely inflation.

amd7239 wrote:Somebody please convince me to get back into the market!

It would only make sense to go back into the market now if it will took 9.5 years to drop 15%. For this to happen, the market would continue growing and peak in 8 or so years (according to historical data). We've already had 8 years...that would be a 8+8 = 16 year bull market -- possible but highly unlikely!)

Note that Strategy B is NOT emotional – it means putting in a limit order when the market is at 15% below its current value.

As I said earlier, I’m assuming the market returns to its current value someday (Assumption #1). This is definitely the weakest point of my logic. Let’s talk about that in the comments!

Nah. Keep you cash. Let's see how much purchasing power you will lost during the years you decided to be on the sideline. My guess is that it won't be as much as the lost return when you try time the market.

amd7239 wrote:Somebody please convince me to get back into the market!

I don’t see the sense in going back into the stock market now. See calculations below. I am in all cash right now. I would love your opinion on my logic.

Assumption #1:
After the next recession (whenever that is), I think it’s fair to say stocks will take some time to return to their current value (based on historical data).

I don't think that is fair to say, since stocks may not drop below their CURRENT value during the next recession.

That's a rather crucial distinction: it is inevitable that at some point in the future, stocks will drop a lot below where they are THEN. It is not inevitable they will drop below where they are NOW. The difference between these two propositions is one of the major reasons why waiting to buy "on the dips" doesn't tend to work.

amd7239 wrote:But is such a YUGE surge even possible? Ot seems the market is overvalued already.

People have been saying that for years.

Suppose you bought this argument three years ago, and pulled out in May of 2014. Since then, the SP500 with reinvestment is up about 34%. I believe the only two times U.S. stocks have dropped significantly more than that are the Great Depression and Great Recession. So, the odds are really starting to stack against such a person.

Where are we going from here? No clue. But consider 1997, which was about 10 years after the late 1980s crash, and we had similar valuations. Over the next three years, the SP500 went up another 80% or so. So even by the time it crashed to the bottom in 2002, it was still up about 11%.

delamer wrote:What if the market goes up 25% before it experiences a 15% drop?

That would be fine. All I want is for it to drop by 15 percent so i cam buy.

Do not invest in stocks today. You clearly don't understand how they work. Do some research until you understand, then come back.

What specifically should I research?

John Bogle's Little Book of Common Sense Investing was earth shattering for me. It addresses your current conundrum and provides historic data on the pitfalls of trying to time the market. You're proposed strategy is more likely to lead to less money (in the long run) and more stress then just getting in and letting it ride.

Common theme I find with younger, low net worth people on our boards. They are focused on the current value of their cash/investments. To build wealth you have to focus on where you want to be 30 years from now.

What if this and what if that. Do you really think you can time the market when millions of people and a lot of "experts" couldn`t. And if someone on this website convinced you to get back in then when do you get back out again ? This is so foolish. Just buy the total market index and focus your attention to other things in life and stop gambling.

Cash since 2014? And you didn't buy in Feb 2016? What makes you think it will get better now?

Lots of people are waiting for a 15 percent drop. I buy extra at 5 percent, 10 percent, 15 percent, 20 percent. But I never skip a regular contribution on my schedule. I'm not smart enough to guess and I'm not lucky enough to know for sure.

The market is good right now - and you're afraid of jumping in. If and when the market becomes bad, then you'll jump in? What if you lose your job during the next recession/market drop? Will you be comfortable putting in all your savings into the crashing stock market? What if the market aggressively loses 15%, will you immediately put all your money in, or will you start thinking that it will keep dropping? What if you put it all in at a 15% drop, and it drops another 35% - will you be tempted to sell? What if the market keeps going for another decade, and when it drops, it will drop to a higher amount than it is today? When it goes back up, will you be tempted to sell? At what point? It will drop again, right?

The answer to all that is to stop worrying about the market and create a plan, invest your money, and stick to said plan no matter what. Decades from now you'll thank yourself.

I needed this thread. I'm pretty new to this and am "all in" on stocks. I plan to be that way for 30+ years. I'm trying to not listen to the chatter about how over-valued the stocks are, but it's difficult. I've considered increasing my cash position to "be ready for the dip!" but I'm going to stay the course. If it dips, it dips...and I'll keep buying. (sigh)

amd7239 wrote:Somebody please convince me to get back into the market!

I won't try. It's your money. It's your life. It's your decision.

I ... have about $50k to invest (in my 401k) – it’s currently all cash (because I switched from employer fund options to brokeragelink in my fidelity 401k in 2014, which forced me to sell all my stocks).

I'm sorry, I don't understand that. Perhaps you were forced to liquidate your fund options, but within "brokeragelink" was there anything stopping you from immediately reinvesting it into a portfolio generally similar to the one you liquidated? Why didn't you do that?

Since you are 27, presumably you will be retiring in about 2017 + 65 - 27 = 2055. The chart below shows total growth, including reinvested dividends, from a $10,000 investment in each of three mutual funds made in mid-2014. You presumably had about five times that amount in mid-2014.

If you stayed entirely in cash--for example, in the Fidelity money market fund, FIDXX (green) you would have had about 5 x $10,094.33 = $50,471.65.

If you had invested it in the most obvious choice, the Fidelity Freedom 2055 fund, FDEEX (orange) you would now have 5 x 12,268.51 = $61,342.55.

If you had invested it in the Fidelity equivalent of the fund most often mentioned in this forum as a general-purpose "stock market" holding--the Fidelity Total Market Index Fund, FSTMX (blue) you would now have 5 x $13,106.33 = $65,531.65.

Does that mean you should get back into stocks now? NO, IT DOES NOT. What it does mean, though, is that you should cultivate a healthy doubt about your personal ability to forecast when to stay in and when to stay out.

All these suggestions and I don't think we even know what your target asset allocation will be when you get back in. So, when you move into equities how much of your cash assets will go to equities and how much to other things like bonds?

You made a mistake in 2014 when you transferred funds to another account. That was a sideways move and you should have resumed your AA immediately after the transfer was complete. Now you think a 15% drop is a trigger, but why 15% instead of some other arbitrary number? You could just be catching the falling knife if the market continues to drop 40%. Have you considered dollar cost averaging back in? That is sort of a compromise, but it may get you out of the emotional dilemma you are in.

Paul

When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

amd7239 wrote:Somebody please convince me to get back into the market!

I won't try. It's your money. It's your life. It's your decision.

I ... have about $50k to invest (in my 401k) – it’s currently all cash (because I switched from employer fund options to brokeragelink in my fidelity 401k in 2014, which forced me to sell all my stocks).

I'm sorry, I don't understand that. Perhaps you were forced to liquidate your fund options, but within "brokeragelink" was there anything stopping you from immediately reinvesting it into a portfolio generally similar to the one you liquidated? Why didn't you do that?

Since you are 27, presumably you will be retiring in about 2017 + 65 - 27 = 2055. The chart below shows total growth, including reinvested dividends, from a $10,000 investment in each of three mutual funds made in mid-2014. You presumably had about five times that amount in mid-2014.

If you stayed entirely in cash--for example, in the Fidelity money market fund, FIDXX (green) you would have had about 5 x $10,094.33 = $50,471.65.

If you had invested it in the most obvious choice, the Fidelity Freedom 2055 fund, FDEEX (orange) you would now have 5 x 12,268.51 = $61,342.55.

If you had invested it in the Fidelity equivalent of the fund most often mentioned in this forum as a general-purpose "stock market" holding--the Fidelity Total Market Index Fund, FSTMX (blue) you would now have 5 x $13,106.33 = $65,531.65.

Does that mean you should get back into stocks now? NO, IT DOES NOT. What it does mean, though, is that you should cultivate a healthy doubt about your personal ability to forecast when to stay in and when to stay out.

Since your still young - most of your allocation should be in equities (ie S&P 500 is a good choice). You also left out the effect of compounding in your equations. Every quarter your dividends get reinvested in the market and this keeps growing over time. If you leave your money in a money market (or mattress) there is little (or no) growth or compounding effect. I'm not saying you should go all-in right now.... But I think you should consider slowly dollar cost averaging back into the market.

Shouldn't say this probably but I hate these threads where a poster has made a decision and done something and then dares the rest of us to convince him of the error of his ways. It is sort of like the old battery commercials where Robert Conrad puts a battery on his shoulder and dares us to knock it off. The old chip on the shoulder thing.

My thinking is that you need to study up on market history and get a long term perspective of how the financial markets have performed over time. Learn about why there is an equity premium of stocks over bonds and get a good sense of how stocks and bonds have performed historically. Learn about the secular bull and bear markets, that is where the stock market is in a trend for many years. For example, there were strong bull markets after WWII until about 1968 and another from 1984 through early 2000. Markets were pretty much flat from maybe 1929 through maybe 1948 or so and again from 2000 through about 2012 or 2013. The bull markets I described were secular bull markets and the flat markets were secular bear markets. In other words, such trends can last a long time.

Bill Bernstein's book, The Four Pillars of Investing, is a great book and gives a great sweep of market history. He boils down a rational approach for investing in the markets.

The point is, you have to develop strong convictions for yourself so that you have the courage to invest your hard earned money into the financial markets. We just cannot do that for you. It would also be helpful to write an Investment Policy Statement for yourself. The Wiki has a great article on this and Morningstar has a good worksheet on its website. Pretty much, it is the philosophical foundation for your investment plan, sort of a preamble stating who you are as an investor and your essential beliefs about the market. Then you write down the beginnings of your investment plan.

Get a plan, Stan. As the late Yogi Berra would say, "If you don't know where you are going, how are you going to know when you get there?"

amd7239 wrote:Assumption #1:
After the next recession (whenever that is), I think it’s fair to say stocks will take some time to return to their current value (based on historical data). For the sake of argument, let’s assume this happens Y years from today, but the # years does not matter at all in this calculation. This is an important assumption to talk about later, but hear me out…

As I said earlier, I’m assuming the market returns to its current value someday (Assumption #1). This is definitely the weakest point of my logic. Let’s talk about that in the comments!

Nope, the weakest point in your logic is that it is fair to say stocks will ever fall back to their current value. If you had made this assumption in June of 1997 (using Vanguard's total market fund as a barometer), half a year after the chairman of the fed called the market irrationally exuberant you would still be waiting to get back in and be much, much poorer for it.

Convincing someone that they should be in stocks when they are obviously poorly equipped to handle the risks seems like a bad idea to me.

Work out a plan you can stick with OP. Trying to guess when to get in and out is a losing game. Whether you believe the market is efficient or not, trading in and out is provably zero-sum in aggregate, with negative expectations after expenses.

Last edited by JoMoney on Wed May 17, 2017 10:51 pm, edited 1 time in total.

"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

rob wrote:Stay OUT of the market - read - build a plan - invest as per that plan - go on with something interesting.

+1

I was just about to post that the question isn't "should one get back into the stock market," but "should one follow one's investment plan," specifically one's target AA. The answer to that is almost always "Yes, do it now, assuming you have a plan."

Listen very carefully. I shall say this only once. (There! I've said it.)

You have already received a lot of good advise.
Please read it carefully, and in parallel study about investing and the stock market. Start with some of the books mentioned in the reading list on our wiki, start with "if you can". Other pages that are good starting points in our wiki are: "getting started" and Bogleheads "investing start-up kit".
Do a search for "bob the worst market timer" on google.

amd7239 wrote:Somebody please convince me to get back into the market!

I don’t see the sense in going back into the stock market now. See calculations below. I am in all cash right now. I would love your opinion on my logic.

Assumption #1:
After the next recession (whenever that is), I think it’s fair to say stocks will take some time to return to their current value (based on historical data). For the sake of argument, let’s assume this happens Y years from today, but the # years does not matter at all in this calculation. This is an important assumption to talk about later, but hear me out…

At the Y-year mark, let’s compare 2 strategies: getting back in now and waiting until the market drops to get back in. And compare the returns:

Side note:
I am 27 and have about $50k to invest (in my 401k) – it’s currently all cash how much of this was from the original switch. How much have you added to it since 2014?(because I switched from employer fund options to brokeragelink in my fidelity 401k in 2014, which forced me to sell all my stocks). please share with us why this was needed. I cannot remember reading about such a thing for the past x yearts that I am reading Bogleheads.

------- STRATEGY A: BUY STOCKS NOW------
Appreciation:
None (our assumption states that in Y years, market value will equal current value)Wrong assumption: on average the stockmarket will have gains. If you believe that the stockmarket on average will not appreciate then you should never invest in the stockmarket

Dividends:
My portfolio (index funds) would give an average 1.5% dividend yield Where did you get this number from?
--> 1.015^x, where x is number of years, tells you the new value due to return from dividends

-----------STRATEGY B: WAIT FOR 15% DROP--------
Appreciation:
> Buy when market is 15% below its current price
> When the market returns to its current price I will have made a 15% return (Portfolio appreciates by a factor of 1.15)

Dividends:
I will ignore the dividend gains from this because I don’t know how long it will take to appreciate 15%.Please educate yourself so you will know. dividends are part of the total return that stocks bring

It would only make sense to go back into the market now if it will took 9.5 years to drop 15%. For this to happen, the market would continue growing and peak in 8 or so years (according to historical data). We've already had 8 years...that would be a 8+8 = 16 year bull market -- possible but highly unlikely!)

Note that Strategy B is NOT emotional – it means putting in a limit order when the market is at 15% below its current value. but you will be emotional at that time, certainly if you are already emotional now when the market is good

As I said earlier, I’m assuming the market returns to its current value someday (Assumption #1). This is definitely the weakest point of my logic. Let’s talk about that in the comments!

BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

Why do people think the stock market is high? The S&P 500 average annual return from 2000-2016 was only 2.3%. It was went down like hell from 2000-2009 and has only just recovered a bit. The long term average is 10% which leaves huge head room to grow just to return to the historical average.